sentimenTrader Blog


2019-02-15 | Jason Goepfert

Climbing claims

A 4-week average of jobless claims hit a 52-week high this week, triggering an increase in the probability of recession.

Other times that claims cycled from a 52-week low to a 52-week high since 1967, there was a headwind for stocks and tailwind for bonds, especially over the next couple of months.

A tale of two markets

Low volatility stocks within the S&P 500 have completely erased their December decline and are trading at a 52-week high. High beta stocks, however, suffered a decline about three times as large and are still trading 10% below their high. That has been a short-term headwind for stocks in general.

For these “safer” stocks, outperforming High Beta so much tended to be a good sign. From the next month forward, the return on Low Volatility was above random, significantly so after three months.

More extreme

The McClellan Oscillator for the Shanghai Composite has now jumped above 90. According to the Backtest Engine, since 2003 there have been 10 other days when its breadth momentum hit this high of a level, leading to losses over the next 1 and 8 weeks.

More momentum

We’ve looked at the thrust in breadth many times over the past month and a half, including earlier this week. It remains the most positive development of anything we look at. For the record, the NYSE McClellan Summation Index just crossed 1,000 for the first time in at least 50 days. Per the Backtest Engine, that led to a positive return for the S&P 500 over the next year 27 out of 28 times.

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2019-02-14 | Jason Goepfert

One of the basic inputs we've used in the simple recession probability model is the 4-week average of jobless claims. The figure released today shows another uptick, and the 4-week average just hit a 52-week high.When claims went from a 52-week low to a 52-week high, stocks have struggled ...

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2019-02-14 | Jason Goepfert

Jumping over a flat average

The S&P 500 finally closed above its 200-day average after a couple of months below. Because the decline was not that severe or long-lasting, the average was flat.

When the S&P has ended a streak below its 200-day average and that average was flat, its returns were quite a bit less positive than if the slope of the average was more negative. Across almost every time frame, the S&P was positive more often, by a greater amount, with less risk, and with more reward, when it crossed above a downward-sloping 200-day average.

Thrust, then optimism

A Zweig Breadth Thrust triggered early in January, and now we’re seeing some signs of returning optimism. When that has happened other times since 1970, stocks mostly kept grinding higher, though the next couple of months were choppy. In the short-term, returns were mostly good, but by two months later, the overall bias was negative, including 7 of the last 9 signals.

Overbought in a downtrend

The McClellan Oscillator for the Shanghai Composite has crossed above 50 while the index is still below its declining 200-day moving average.

According to the Backtest Engine, since 2003 that has led to a further gain for the Shanghai over the next month only 40% of the time, with an average return of -0.6%.

Longer-term thrust

Breadth momentum has been so positive for tech that the McClellan Summation Index has soared above +1250. This has led to negative returns for the XLK fund over the next 1-2 weeks, but a year later it was higher 95% of the time by an average of 16.3%.

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2019-02-13 | Jason Goepfert

Smart money piles in

As delayed reports get released, we’re seeing that “smart money” hedgers were busy buying Nasdaq and DJIA futures in January. This is unusual since the market was rising, and it’s even more unusual how aggressive they were.

When they went net long those contracts since the financial crisis, the S&P rose in the months ahead every time.

Leaving the U.S.

A different kind of money manager that focuses more on longer-term fundamentals seems to not be seeing the same value that futures traders are. The monthly BofAML survey shows that fund managers are underweight the U.S. and heavily overweight emerging markets, which has tended to lead to an upswing in the ratio of SPY to EEM.

The Commitments of Traders report was released, covering positions through January 15

Due to the government shutdown, the CFTC is releasing this report twice per week until they are caught up. The 3-Year Min/Max Screen shows that through January 15 shows the multi-year extreme in Nasdaq futures, as well as the Nikkei and a couple others.

Back to optimism

Nearly 45% of our indicators are now showing excessive optimism, the most since January 2018. According to the Backtest Engine, readings above 43% led to an annualized return in the S&P 500 of -11.8% (those are next-day returns, annualized).

This post was an abridged version of our previous day's Daily Report. For full access, sign up for a 30-day free trial now.


2019-02-12 | Jason Goepfert

In stocks, “smart money” hedgers built up their largest net long position of the bull market. Hedgers went net long in Nasdaq and Dow futures, and their positions in those two contracts are often a better tell for stocks in general than S&P 500 futures positions are.This is notable because they ...

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2019-02-12 | Jason Goepfert

Sustained momentum

The McClellan Summation Index continues to power higher, showing impressive and sustained momentum. After being below -500 for at least 10 consecutive days, it is now above +500 for 10 straight, flipping its momentum.

When it has been able to maintain a high level after flipping momentum since 1962, it has typically preceded markets with the kind of momentum that hasn’t rolled over.

Cumulative divergence

The Cumulative Advance/Decline Line is nearing its prior high, showing an impressive run of more advancing stocks than declining ones. But the Cumulative New High / New Low Line has barely budged.

That could suggest a troubling divergence, but when this has happened before, it was a good sign for stocks.

Options traders return

While still not to an extreme, small options traders bought quite a few more calls last week, pushing the ROBO Put/Call Ratio down significantly. Overall, traders executed 22% more bullish options strategies than bearish ones, the most since September.

Nice move

Heading into this week, 100% of S&P 500 Utilities stocks were trading above their 50-day moving averages. The Backtest Engine tells us that when this happens for the first time in at least 3 months, XLU rallied over the next two weeks only 38% of the time.

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2019-02-11 | Jason Goepfert

One of the most popular ways to view the breadth of a market is by watching the Cumulative Advance/Decline Line. And the most popular among the various versions is the one tracking all NYSE securities, or the one using common stocks only. A much lesser-known version of the Cumulative Line uses ...

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2019-02-11 | Jason Goepfert

Earnings contraction

Companies in the S&P 500 have shown 10 quarters of year-over-year growth in operating earnings, but that streak is in danger of ending. Estimates for this quarter continue to come down.

If that’s going to be the case, then traders start to anticipate slower growth, and returns in the S&P were poor because of it. When these long streaks of earnings growth ended, the S&P struggled in the months ahead.

They’re back

After pulling back their exposure to stocks, and raising their cash levels, in December, mom-and-pop investors returned in force in January. The AAII survey shows that they returned to a near-record level of exposure to the stock market, which has led to generally poor returns. Once net exposure exceeded 55%, stocks started running into trouble. Above that level, the S&P’s annualized return was -1.6% compared to +9.3% below that threshold.

Strong dollar

The U.S. dollar has rallied for 7 straight days, with a decent gain, and enough to push it close to its 52-week high.

Similar bouts of momentum have been a decent sign for the dollar going forward, but consistently negative for both stocks and gold.

The Commitments of Traders report was released, covering positions through January 8

The CFTC is still catching up from the government shutdown, so these positions are a month old. Hedgers were fairly aggressive in adding to the Nasdaq, but not so much the other major stock indexes. They were aggressive in selling Treasuries, especially the 10-year.  The 3-year Min/Max Screen showed a few extremes, including the Nasdaq. Other markets are mostly neutral, though they’ve been buying the Canadian dollar and selling silver.

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2019-02-08 | Jason Goepfert

One of the best performing assets lately has been the U.S currency, and while intermarket relationships are always in flux, a rising dollar has been a concern for investors across many asset classes. The U.S. Dollar Index just managed its 7th straight gain, one of its best streaks in 40 ...

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2019-02-08 | Jason Goepfert

According to the latest survey results from AAII, they piled back in during January’s large rebound. They upped the allocation to stocks to over 71% of their portfolio, at the expense of their cash cushion which plunged to just over 13%.The spread between their stock and cash allocations is just ...

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